| Year | 0 | 1 | 2 | 3 | 4 |
|---|---|---|---|---|---|
| IC | 100 | 70 | 50 | 35 | 0 |
| Income | 0 | 20 | 30 | 20 | 5 |
Kerry Back
BUSI 721, Fall 2022
JGSB, Rice University
| Year | 0 | 1 | 2 | 3 | 4 |
|---|---|---|---|---|---|
| Invested capital | 100 | 70 | 50 | 35 | 0 |
| Income | 0 | 20 | 30 | 20 | 5 |
| ROIC | 0.2 | 0.428 | 0.4 | 0.143 |
\[(\text{ROIC} - \text{required return}) \times \text{lagged IC}\]
cost of capital = 10%
| Year | 0 | 1 | 2 | 3 | 4 |
|---|---|---|---|---|---|
| Invested capital | 100 | 70 | 50 | 35 | 0 |
| Income | 0 | 20 | 30 | 20 | 5 |
| Charge for capital | 0 | 10 | 7 | 5 | 3.5 |
| EVA | 0 | 10 | 23 | 15 | 1.5 |
| Year | 0 | 1 | 2 | 3 | 4 |
|---|---|---|---|---|---|
| Invested capital | 100 | 70 | 50 | 35 | 0 |
| Income | 0 | 20 | 30 | 20 | 5 |
| ROIC | 0.2 | 0.428 | 0.4 | 0.143 | |
| Extra return | 0.1 | 0.328 | 0.3 | 0.043 | |
| Lagged IC | 100 | 70 | 50 | 35 | |
| EVA | 10 | 23 | 15 | 1.5 |
import numpy as np
import pandas as pd
IC = pd.Series((100, 70, 50, 35, 0))
Income = pd.Series((0, 20, 30, 20, 5))
df = pd.concat((IC, Income), axis=1)
df.columns = ["IC", "Income"]
df.index.name = "Year"
df.T| Year | 0 | 1 | 2 | 3 | 4 |
|---|---|---|---|---|---|
| IC | 100 | 70 | 50 | 35 | 0 |
| Income | 0 | 20 | 30 | 20 | 5 |
cost_capital = 0.1
df["Capital charge"] = cost_capital * df.IC.shift()
df["EVA"] = df.Income - df["Capital charge"]
df[["IC", "Income", "Capital charge", "EVA"]].T| Year | 0 | 1 | 2 | 3 | 4 |
|---|---|---|---|---|---|
| IC | 100.0 | 70.0 | 50.0 | 35.0 | 0.0 |
| Income | 0.0 | 20.0 | 30.0 | 20.0 | 5.0 |
| Capital charge | NaN | 10.0 | 7.0 | 5.0 | 3.5 |
| EVA | NaN | 10.0 | 23.0 | 15.0 | 1.5 |
df["PV factor"] = 1 / (1+cost_capital)**df.index
df["PV of EVA"] = df["EVA"] * df["PV factor"]
df["NPV"] = np.nan
df["NPV"].iloc[0] = df["PV of EVA"].sum()
df[["EVA", "PV factor", "PV of EVA", "NPV"]].T.round(2)| Year | 0 | 1 | 2 | 3 | 4 |
|---|---|---|---|---|---|
| EVA | NaN | 10.00 | 23.00 | 15.00 | 1.50 |
| PV factor | 1.00 | 0.91 | 0.83 | 0.75 | 0.68 |
| PV of EVA | NaN | 9.09 | 19.01 | 11.27 | 1.02 |
| NPV | 40.39 | NaN | NaN | NaN | NaN |
Discounted EVA equals NPV